Former Republican Senator Pete Domenici and former CBO and OMB director Alice Rivlin propose an approach to balance the budget (and boosting the economy) somewhat different from the one floated by the chairmen of the president’s task force:
To ensure a more robust recovery, we propose a one-year “payroll tax holiday” for 2011, suspending Social Security payroll taxes for employers and employees. We also would phase in the steps to reduce deficits and debt gradually beginning in 2012, so the economy will be strong enough to absorb them.
We would stabilize the debt held by the public at less than 60 percent of gross domestic product, an internationally recognized standard; reduce annual deficits to manageable levels; and balance the “primary” budget (everything other than interest payments) by 2014.
We would dramatically simplify the tax system, establishing individual tax rates of 15 and 27 percent (from the current high of 35), cutting the corporate tax rate to 27 percent (from 35 today), ending most deductions and credits while simplifying the rest, and ensuring that nearly 90 million households no longer have to file returns. To reduce the debt, we would supplement our spending cuts with a 6.5 percent “debt-reduction sales tax.”
We would strengthen Social Security so it can pay benefits for the next 75 years by gradually raising the amount of wages subject to payroll taxes; slightly reducing the growth in benefits for the top 25 percent of beneficiaries; raising the minimum benefit for long-term, low-wage workers; indexing benefits to life expectancy; and changing the calculation of cost-of-living adjustments to better reflect inflation. We would not raise the age at which senior citizens can begin receiving benefits.
We would control health-care costs – the biggest driver of long-term deficits – by reforming Medicare and Medicaid while, starting in 2018, capping and then phasing out the tax exclusion for employer-provided health care. We would reform medical malpractice laws and help address the health costs tied to rising obesity by imposing a tax on high-calorie sodas.
We would freeze domestic discretionary spending for four years and defense spending for five, both at 2011 levels, and then limit their future growth to the rate of growth in the economy.
Finally, we would cap domestic and defense discretionary spending (with tight exceptions for true emergencies) and trigger across-the-board cuts if the caps are breached; enact a strict pay-as-you-go statutory rule for tax cuts or expansions of entitlements; and enact long-term budgets for major entitlements while creating a Fiscal Accountability Commission that would recommend policy changes every five years if entitlements are exceeding their budgets.
while debt reduction commission member Congresswoman Jan Schakowski has her own alternative to the plan offered by commission chairmen Simpson and Bowles:
The Schakowsky plan is based on five key elements:
1) Increased economic stimulus to spur growth in the immediate term
· Provide $200 billion to invest over the next two years in measures to create jobs and spur economic growth, including passing the Local Jobs for America Act; and funding for education and law enforcement; Unemployment Insurance, Federal Medical Assistance Percentages (FMAP) and Supplemental Nutrition Assistance Program extensions; and infrastructure.
· Adopt the President’s proposals to eliminate overseas tax havens and incentives for outsourcing2) Smart, targeted spending cuts
· Non-Defense Discretionary – $7.55 billion in savings through increased efficiency and cuts to programs that benefit large corporations that don’t need assistance.
· Defense Discretionary – $110.7 billion in cuts from the 2015 defense budget, including efficiency savings, reducing our troop levels, cutting weapons systems we don’t need, and scaling back the wartime increases in the size of the military.3) Mandatory spending cuts
Health Care – at least $17.2 billion in savings by implementing measures to bring down the cost of health care to the federal government and lower health care inflation overall.
Other – $7.7 billion in savings by cutting agriculture subsidies in half, and redistributing federal support to offer greater benefits to small family farms reduce subsidies to large corporate agribusiness.4) Reductions in tax expenditures
Raise $132.2 billion by closing tax subsidies for companies that ship American jobs overseas.5) Increases in revenues
Raise $144.6 billion in revenue through progressive reforms to the estate tax, treating capital gains and dividends as regular income, and enacting a cap and trade proposal that includes protections for lower-income people.
Enact President Obama’s budget proposal to let the Bush tax cuts for the top 2 brackets expire and return to 2009 estate tax levels.
Non-tax revenue – raise $7 billion by addressing places where the private sector is currently under-paying.
I think that both of these plans have some serious flaws but of the two I prefer the Domenici-Rivlin approach. Among other things I think that a payroll tax holiday is more likely to spur both spending and employment than other forms of stimulus.
Schakowski’s plan looks like it’s built on a static model of the economy with respect to her plan to increase revenues.
I don’t take her plan seriously. The other plan looks more thought out. I like the idea of a payroll tax holiday but I would add that this skipped year be excluded from benefits calculation at the time of retirement. As for Medicare I’m not too sold on a strategy which rests on “reforming Medicare and Medicaid” because that tells me absolutely nothing. It looks like handwaving. The obesity tax is a gimmick and its inclusion leads me to suspect that these two reformers really don’t have a clue as to what to do about medical payment reform.
Yeah, that was the main serious flaw I was referring to with the plan in my post.
I think the payroll tax holiday made sense over a year ago, when unemployment was increasing.
But what’s interesting to me is that both these plans start with the proposition that “growth” is a factor to be addressed (though I suppose the tax reform plans are somewhat premised on better growth as an outcome). That’s politically smart . . ..
Does Congress have the constitutional authority to impose a National Sales Tax? I’m sure they could do it in a roundabout way by getting the states to do the collection process in exchange for incentives, but imposing one directly?
Does Congress have the constitutional authority to impose a National Sales Tax?
If your inaction on the issue of purchasing a health insurance policy is an impediment to inter-state commerce and so the feds have the authority to compel you to buy such a policy, then I don’t see why they couldn’t concoct some equally bizarre rationale to impose a national sales tax.
I have “my plan” fatigue.